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Jack Lifton
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Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration,... More
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Technology Metals Research
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The Jack Lifton Report
  • Travels in Rare Earth Space: Monday May 4, 2009, MolyCorp's True Intentions Towards Great Western Minerals Group 1 comment
    May 4, 2009 11:38 AM

    Publicly traded Canadian rare earth mining and technology company, Great Western Minerals Group (TSX: GWM), issued a press release this morning announcing that it was modifying its negotiations with privately held US rare earth mining company ,MolyCorp to terminate their exclusivity.

    The press release said that..." Although GWMG is no longer obligated to deal exclusively with Molycorp, GWMG's management is continuing discussions with Molycorp with a renewed focus on Molycorp's possible
    acquisition of GWMG's manufacturing assets."

    This, I think, clarifies MolyCorp's real interest in GWMG as well as GWMG's real interest in Molycorp, or any other similarly situated party interested in putting money into GWMG.

    GWMG's primary goal is to stay in the rare earth mining business through a period of extreme contraction in the availability of financing for junior mining companies. Molycorp's goal is to make the "mine to market" strategy devised by GWMG work for itself in its reincarnation as Molycorp's "Mine to Magnet" strategy. Both companies have something to gain from a tie-up. If Molycorp gets control of GWMG, as it originally entered into negotiations to do, then it, Molycorp. would have a home for any production it had or could obtain from GWMG of neodymium, praseodymium, samarium, dysprosium, and terbium. These rare earh metals could be fed to Less Common Metals (NYSE:LCM) and/or Great Western Technology, Inc.,(GWTI) for the manufacture of powdered rare earth magnet alloys, which can be sold to magnet manufacturers.
     

    Today the feedstock for anything and everything done at GWTI and LCM is from China. The customers for the magnet alloy powders do the sintering of the powders into magnet shapes and sizes for their end use customers, primarily the manufacturers of permanent magnet type electric motors for small and medium size applications such as personal electronics, motor vehicle accessories, and the like. Large scale permanent magnets such as those that can be used for wind turbine generators come today from China where fabricators can be certain of access to large quantities of rare earth metals, such as the one ton of neodymium required for the construction of a generator for a wind power unit with an output of 1 megawatt. Without steady access to large quantites of rare earths the price of building sintering molds for such large applications is prohibitive.

    Another factor that magnet makers face is Chinese attitudes towards customers who are looking for alternate suppliers. I am told that it is common practice with Chinese suppliers to tell their rare earth customers that if they, the customer, are seeking additional or alternate suppliers then their place on the allocation list will slip or be eliminated. Thus magnet makers in the west rarely say openly that they would like to look for a broader supply base, but "everyone knows," supposedly that if a solid non Chinese supplier came along then getting business would be no problem-that is so long as there are non Chinese makers of rare earth based permanent magnets. Molycorp, of course, is a threat to Chinese monopolization of the rare earth supply market just by its existence.

    Molycorp however, so long as it is not producing, is in a paradoxical position. It could produce, at great upfront expense, and then face customers who would find that Chinese suppliers had suddenly freed up allocations and perhaps even lowered prices. This is exactly what happened to Molycorp in the late 1990s as China lowered prices and flooded the market until Molycorp simply had to shut down, because it had become the high cost producer.

    Molycorp obviously fears another round of predatory pricing by the recently very aggressive Chinese rare earth mining industry, which has just in the last two months literally absorbed the Australian rare earth mining and refining industry just as it, the Australian industry, was about to take off.

    Molycorp needs GWTI and LCM more than it needs any or all of the rare earth deposits of GWMG. But Molycorp needs one more piece of the puzzle to be secure from Chinese predatory politics; it needs a magnet manufacturer or an alliance with one, and it cannot announce any such negotiation until the whole thing is in place lest the Chinese pressure the chosen magnet manufacturer to back off. We may not hear any more about a magnet manufacturer from Molycorp for the time being, but it won't be too surprising to hear that Molycorp has bought GWTI and LCM and has raised enough money privately to reconstitute the refinery at the Mountain Pass mining property.

    Molycorp says it has gotten the go ahead to resume mining from California regualtors, but it still needs to have an LCM and an end product manufacturer before the whole plan becomes predator proof.

    I hope it works out, because, if not, America is the loser. I also wish that the American activist environamental movement with its knee-jerk oppostion to mining would think again about what their broad brush approach to smearing American mining as eveil is doing to our future security and industrial self-sufficiency..

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  • jimp
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    It appears that Lynas which has now recently partnered with China, still will beable to have clients/customers else where in the world.

     

    Any thoughts on the Lynas corp? Do you think it's positively positioned to ride the new wave of green/techno applications?

     

    Thank you for the insightful article.
    4 May 2009, 05:06 PM Reply Like
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